The Rise and Return of O&G... NOW?

2 big news from O&G industry in the last month of 2016.

2 gap ups in the Brent Oil chart [1]

Notice that there are two gap ups? I had labelled A and B in the chart above. A happened when OPEC (Organization of Petroleum Exporting Countries) agreed to first ever production cut in 8 years[2]. It happened on 30 November 2016. The gap up in B happened immediately after non-OPEC and OPEC producers agree on output cut[3]. 

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Next, our question will be, will this be a long term solutions to further push up the oil price? For me personally, yes. It will further bring up the oil price. The reason is simple, supply and demand. Previously, the supply is more than the demand, hence the oil price dropped. Now if we reduce the oil supply, i strongly believe the oil price will go up, but will not go as high as USD110, perhaps USD80 is in the making. The root cause for declining oil price is due to more supply, now the issue had been tackled and production had been cut from both OPEC and non-OPEC countries. This is indeed a boost for all the O&G sector. Maybe this time is the rise and return of the O&G stocks in Malaysia...

Let us look at SKPETRO who had just released their Q3 result on 8 December 2016. 

SKPETRO Q3 Result increased 22% yoy and 41% qoq[4]

SKPETRO posted its Q3 result on 8 December 2016 during lunch time. And hence, after that, it had gained investors' attentions and it closed at highest 1.55. SKPETRO's net profit increased 22% yoy and 41% qoq due to the absence of the impairment in its balance sheet[4]. However, its revenue dropped 23% yoy but increased 33% qoq due to the slowdown of O&G industries and weaker oil prices. Recently, IJM replaced SKPETRO in the latest FBMKLCI constituents review[5].

SKPETRO Daily Chart

Notice there is a gap up on 1 December? It is due to OPEC announced the production cut. SKPETRO gapped up 4% on 1 December. And now the news of OPEC and non-OPEC had agreed on the production cut might cause the chart to gap up again. However, beware that there might be people taking profit, due to "buy on rumours, sell on fact". So set your strategy appropriately. Do not make hasty decisions. 

Another direction that we can head is normally towards the year end, windows dressing might happen. Let's look at the FBMKLCI weekly chart.

FBMKLCI Weekly Chart

In the weekly chart, our index is trying to break the downtrend, supported at 1628.98. Recently the volume in our index is low if compared to previous weeks. This might be due to holiday season and investors are currently away. We also need to monitor the foreign inflow and outflow. We can try riding on the wind of windows dressing. But we need to be careful of the FED meeting on 14 December (Wednesday) on the possible hike of interest rate. However, be mindful that windows dressing mostly will happen to the index counters. You can take a look at my post last year about windows dressing, by clicking HERE[6]. 

Now we need to be careful in picking our stocks. A quick summary for today:

1. You can invest in O&G counters; (if O&G price is still steady.)

2. You can invest in FBMKLCI constitued stocks; (if windows dressing really happened this year).

MUST REMEMBER TO PLAN YOUR STRATEGY PROPERLY AND STAY DISCIPLINE.

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Let's Ride the Wind and Gainvest

Gainvestor 10sai

12 December 2016
11.52pm

Sources:
1. http://www.investing.com/commodities/brent-oil-streaming-chart

2. https://www.bloomberg.com/news/articles/2016-11-30/opec-said-to-agree-oil-production-cuts-as-saudis-soften-on-iran
3. http://www.thestar.com.my/business/business-news/2016/12/12/oil-prive-surges-monday-as-non-opec-opec-producers-agree-on-output-cuts/
4. http://www.malaysiastock.biz/Corporate-Infomation.aspx?type=A&value=S&securityCode=5218
5. http://www.theedgemarkets.com/en/node/319210
6. http://gainvestor10sai.blogspot.my/2015/11/window-dressing-and-next-targets.html